Global inflation is starting to cool after central banks moved aggressively to rein in high prices, and the economic outlook is brightening after a turbulent period, but a recovery is clouded, according to forecasts released on Thursday.
The pace of the rebound is uneven across the world, and geopolitical tensions could pose significant risks to growth and inflation – particularly if conflicts in the Middle East and the Middle East intensify. red sea attackan important trade and shipping area, if it were to be expanded, Organisation for Economic Co-operation and Developmenta Paris think tank said in its latest economic survey.
“The global economy has proven resilient, with inflation falling within central bank targets and risks to the outlook becoming more balanced,” Matthias Koeman, the organization’s secretary-general, told a news conference in Paris on Thursday. “But uncertainty remains.”
Inflation in the 38-nation OECD is expected to fall to 4.8% this year and 3.5% in 2025, after reaching 9.4% in 2022 when Russia’s invasion of Ukraine triggered an energy crisis. Inflation in the United States and the euro zone is expected to fall this year and next to a 2% target that policymakers say is crucial to maintaining price stability.
“We’ve experienced the biggest inflationary shock in a generation,” Clare Lombardelli, the group’s chief economist, told a news conference. The biggest price increases have been in essential goods such as food and energy, she said, adding that “people with the lowest incomes are being squeezed.”
Lombardelli said high interest rates have helped lower prices, but there is still a risk that inflation will persist longer than expected.
In the United States, the Federal Reserve Keep interest rates stable On Wednesday, he sounded cautious about stubborn inflation. Even so, the OECD predicts that the United States is expected to remain the engine of global growth this year, with an economic growth rate of 2.6%. But the report said the economy will begin to cool next year, with growth slowing to 1.8% as businesses and households adapt to high borrowing costs and begin to curb spending.
Europe, by contrast, is lagging badly, with soaring energy prices stifling manufacturing and a cost-of-living crisis hampering consumer spending. In 2023, both the eurozone and the UK fell into recession, further exacerbated by record-high interest rates adopted by the European Central Bank and Bank of England to combat inflation.
Germany has been particularly hard hit by the energy shock, although the euro zone’s downturn has been partly offset by a strong economy. Growth in Southern European Countries Such as Greece and Spain. The outlook should improve next year as high interest rates fall and business and household spending increases. The OECD predicts that the euro zone economy will grow by 1.5% in 2025, more than double this year’s expected growth rate.
However, UK economic growth will remain sluggish at 0.4% in 2024 before improving to just 1% in 2025 as interest rates remain high, making it the weakest economy among the G7 countries.
In China, a export boom, From solar panels to electric cars, it has fueled manufacturing and helped offset a devastating decline in the housing market, which accounts for about a quarter of the economy.a rapidly unfolding real estate crisis The wealth of millions of Chinese has been depleted and has yet to hit bottom, leading the government to deploy stimulus spending. The OECD said it expects China’s economic growth to slow moderately, to 4.9% in 2024 and 4.5% next year.
The group cited other risks, including that interest rates in the largest economies may need to remain high if inflation does not cool as expected. This could trigger new financial vulnerabilities, particularly in emerging countries, where large amounts of debt maturing over the next three years may have to be rolled over at higher costs.
Against a backdrop of uncertainty, the group cautioned governments to better manage widespread increases in debt around the world – a problem expected to worsen, especially among those who will soon face additional spending pressures from aging populations s country.
